Expansion into oil and gas sector requires patience, building relationships
No matter which side of the environmental debate you fall on, it’s easy to see the value in increasing investment and opportunity in Alberta’s oil sands.
In Toronto, stakeholders and experts were looking to tap into that value at the 2012 Canadian Association of Petroleum Producers (CAPP) investment symposium, with presenters touting more than $117-billion in procurement opportunities in the western province’s largest oil and gas plays and issuing an open invitation to manufacturing firms from across the country looking to get their feet wet in black gold.
“It’s not just a resource business, it’s a tremendous manufacturing business,” Canadian Manufacturers and Exporters (CME) Ontario director of special projects Ron Subramanian said of the cash cow Alberta’s oil and gas sector has become.
Whether looking at upstream oil and gas exploration or the downstream refining and distribution, Subramanian said opportunities abound for firms with the know-how to retool and manufacture what oil and gas companies need.
“The oil sands represent an excellent opportunity to diversify for companies,” he said.
According to Subramanian, the notion of firms moving west to strike black gold is nothing new, with a great deal of Canadian companies heading to Alberta in the mid-2000s in search of opportunity.
With CME launching an all-out blitz to help manufacturers make the transition to Alberta in early 2006, Subramanian himself headed to Calgary to help game-plan for the anticipated influx.
What the province saw was a great deal of metal fabrication, structural steel, piping, material handling and machining firms look to carve out a piece of the proverbial pie inside Alberta’s borders.
There were plenty of successes—CME president Jayson Myers estimates about 65 CME-related Ontario firms were involved in more than $2-bilion in trade between 2006 and 2009 in Alberta—but after only a few short years the energy sector suffered a rapid fall from grace.
While the arrival of outside firms wasn’t the cause of the dramatic slowdown in the oil sands—a sharp drop in oil prices was the main culprit, putting a number of major projects on hold—Subramanian said there was much collateral damage.
“One of the things we noticed … was there were a lot of companies that went to Alberta thinking it was a gold rush,” Subramanian said. “Thinking companies were ready to hand out contracts (and) all you had to do was get a meeting or maybe even just knock down a door and somebody was ready to hand you a contract.”
For all intents and purposes, Subramanian said in the beginning Alberta firms were very receptive to companies in neighbouring provinces.
But it was the way a large number of deals were handled, he said, that hurt the industry and relationships alike.
“They needed the help, but the approach that a lot of companies were taking led them to be quite fatigued,” he said.
In fact, Subramanian said often contracts were inflated by five or six times their value based on the thinking that the industry would simply pay.
“There was a lot of faith lost in the expansion process at that time,” he said. “In some cases, even their intelligence was insulted.”
Rather than reflect on the negatives associated with the boom-and-crash of a few years ago, Subramanian said lessons can be taken away that will educate and improve conditions as recovery works its way back to those 2006 levels.
He said today’s slower pace of growth in Alberta gives firms from outside of the province the opportunity to take the right steps to ensure success and healthy relationship building.
“Educate yourself and your team and do the necessary market research and the assessment,” Subramanian said. “You have to evaluate whether this is even for you before you decide you’re going to participate.”
He also encouraged firms considering the move to build a network with colleagues and professional associations—something that can be invaluable to future success.
“You need to go out and really be at all of the events and build the necessary relationships before you actually need them,” he said.
But perhaps more importantly, he advised firms to be in the market without necessarily being in the market.
“It’s really important for you to be in the market,” Subramanian said, noting the importance of some form of local representation, whether through regular trips to Alberta or hiring an agent to work at the local level.
“You don’t want to necessarily set up shop there, otherwise you’re going to have the same issues that some of the local manufacturers already have (including) skilled labour (shortages),” he continued.
In what he called “the opportunity of connecting the dots,” Mario Potapczuk echoed Subramanian’s message, encouraging firms to view the oil sands not as an Alberta opportunity but as a Canadian one.
“We’re looking at an average of about $3- to $4-billion spent on capital projects in Alberta (annually),” said Potapczuk, manager of projects with Calgary-based engineering procurement and management firm HOCS Projects.
“No matter how we do the math … it’s an enormous number, and when we look at our capacity in Alberta, the conclusion is very obvious: we cannot do it ourselves.”
These are not short-term opportunities either, according to Potapczuk, with many having the potential to stretch 40 to 60 years from present.
Indeed, the decision of whether to make the move to Alberta shouldn’t be made in haste.
“It’s really about planning ahead and looking forward,” Subramanian said. “There are no shortcuts, and moral of the story is ‘luck is where preparation meets opportunity’.”